VAT on electronic services: Telecommunication services
Revised regulations to prescribe and clarify the electronic services (e-services) supplied by foreign suppliers to South African consumers which are subject to VAT were proposed in 2018 which significantly broadened the scope of “e-services”. The Minister, in the 2019 Budget Review, then announced that further amendments would be made to the e-services regulations to address certain oversights. The revised regulations came into effect on 1 April 2019.
The revised regulations define “telecommunication services” with reference to the Electronic Communications and Transactions Act 25 of 2002 (ECTA). The term “telecommunication services” is, however, not explicitly defined in the ECTA.
It is proposed that further changes will be made to the e-services regulations to address this issue.
Reviewing of VAT accounting basis for intermediaries of e-service providers
Foreign e-service providers are entitled to account for VAT on the payments basis. In certain instances, certain supplies made by e-service providers are deemed to be made by an intermediary, who is then required to levy and account for VAT on these supplies.
It is proposed that amendments be made to the Value-Added Tax Act 89 of 1991 (VAT Act) allowing an intermediary to also account for VAT on the payments basis in these instances.
Changing the VAT treatment of transactions under the corporate reorganisation rules
In line with the corporate rollover relief afforded to group companies in the Income Tax Act, the VAT Act provides relief for group companies by deeming the supplier and the recipient for purposes of that supply or subsequent supplies, to be one and the same person. No VAT needs to be accounted for by the supplier or recipient on these supplies.
The corporate rollover relief may, however, not apply to certain of the business assets being transferred. In this instance, the VAT relief under section 8(25) will then also not apply. Reliance on the corporate rollover provisions automatically requires section 8(25) of the VAT Act to apply. VAT relief will therefore not be available notwithstanding that the transfer of the business may have qualified for VAT relief under the going concern provisions in section 11(1)(e) of the VAT Act.
It follows that in certain instances, where the transfer of a business does not qualify for rollover relief, a vendor will not be able to rely on section 8(25) or section 11(1)(e) of the VAT Act for relief, notwithstanding the vendor’s intention that the entire business will be transferred. It is proposed that amendments be made to section 8(25) of the VAT Act to address this issue.
Section 72 arrangements and decisions
Section 72 of the VAT Act allows the Commissioner in certain circumstances where “difficulties, anomalies or incongruities” have arisen, the discretion to disregard the provisions of the VAT Act, and to make arrangements or decisions as to the application of the provisions of the VAT Act, provided that the ultimate VAT liability was not affected.
In 2019, significant amendments were made to section 72 of the VAT Act dealing with the Commissioner’s discretion to make such arrangements or decisions. The amendments to section 72 have had an impact on the validity of arrangements or decisions made prior to 21 July 2019 when the amendments took effect. It has been proposed that government will review decisions and arrangements made prior to 21 July 2019 to ascertain whether they should be discontinued or extended in line with the amendments made to section 72 of the VAT Act.
VAT treatment of irrecoverable debts
In terms of section 22(3) of the VAT Act, where a recipient vendor who accounts for VAT on an invoice basis, has claimed an input tax deduction in respect of an expense incurred, but then fails to pay the full consideration within twelve months of the due date for such payment, such vendor is required to account for output tax equal to the tax fraction of the outstanding debt in the next tax period after the expiry of the twelfth month.
Notwithstanding that section 22(3) currently provides for the time of supply in respect of irrecoverable debts, it has been expressed that there exists uncertainty regarding the value of supply of irrecoverable debts. It is therefore proposed that clarity be provided in the legislation to undress this certainty.
Measures to address undue VAT refunds on gold
Fraudulent VAT refunds relating to gold exports has been on the increase. These malpractices generally involve the import of coins, purchase of Krugerrands and illicit gold. It has been proposed that appropriate regulations be introduced to address these schemes.